Economic Logic, Too

About Me

I discuss recent research in Economics and various events from an economic perspective, as the name of the blog indicates. I plan on adding posts approximately every workday, with some exceptions, for example when I travel.

Thursday, March 1, 2012

The Arab Spring and to a lesser extend the Occupy movement have renewed the interest in political or economic elites and how they manage to stay in power (or not). An extensive literature has already highlighted that elites need to give just enough to the plebs to prevent a rebellion, which can be quite low especially if you have a strong policy or military that is widely represented in the general population yet enjoys significant privileges. But the literature has always concentrated on a model of the elite against the people. What if there could be a potential elite that could try to overthrow the incumbent one?

Bernardo Guimaraes and Kevin Sheedy look at such an eventuality. It should not surprise anyone that an incumbent elite will design institutions that share power to some degree. More interesting is the result that institutions need to guarantee property, and elites need to show restraint in their expropriations. And that is especially good, as plenty of empirical evidence shows that better property rights lead to better aggregate outcomes. Yet, the existence of the elite still leads to too little power sharing and property rights, but more than if others could not overthrow it. According to this theory, Arab leaders went to far in their kleptomania and thereby encouraged rebellions. Let us hope their successors do better.